Anyone wondering what just spooked stocks, sent the dollar surging to YTD highs, and yields tumbling, look no further than Peter Navarro's speech this morning, delivered at the Center for Strategic and International Studies, where president Trump's main China advisor not only lashed out at Goldman and "globalist billionaires", but also accused Wall Street of "shuttle diplomacy" with Beijing, while predictably blasting his archnemesis, China, and repeating the point that "economic security is national security" is the guiding principle of Trump administration, and saying that "if China stopped stealing IP it would lose its economic edge" adding that "if China undertook structural changes US asking for it would be existential change for China."

Finally, and most important for risk assets, he has dismissed prospects of a deal, accusing Beijing of wanting to “tap dance” and engage in economic dialogue so that it can keep doing what it is doing.

This, in a nutshell is what spooked risk assets and sent safe havens like TSYs and the dollar spiking, because as Navarro's speech confirms, there will be no breakthrough in the Trump-Xi meeting either in November, or any time in the forseeable future.

Here is a quick breakdown, courtesy of tweets from Bloomberg's Shawn Donnan's who is at CSIS, summarizing what just happened:

Overflow crowd at @CSIS for Peter Navarro this morning...

Navarro begins by making point that “economic security is national security” is the guiding principle of Trump administration.

He also invokes McKinley’s “Patriotism. Protection. And Prosperity” and the tariffs that followed from that as a great example.

Navarro declares that steel and aluminum tariffs have been huge success and have been repudiation of classical economists’ gloom and doom view that tariffs are bad.

The Section 301 tariffs have been “brilliant” and move has been “tremendously successful” at responding to Chinese “predation”.

Before we move on worth pointing out that what we have seen today is an insight into internal Trump administration debate re China. With his criticisms of “Wall Street shuttle diplomacy” Navarro has been aiming at Mnuchin and Kudlow as much as Hank Paulson et al.

Navarro now taking on Ricardo. Argues Ricardian economics all predicated on floating exchange rates. “That’s not the world we live in... Clear eyes!”

Andrew Philip Hunter of CSIS is asking re exit strategy from tariffs? Navarro argues that post WW2 US got into habit of trading off economic security for national security interests as helped rebuild Europe...

Argues geopolitical case for TPP ignores that it would have devastated auto parts industry and others.

The Trump culture, Navarro says, is to do things from a business perspective and to seed industries rather than subsidize. “For any of you who think tariffs don’t work .. spend like an hour on the internet” and look at anti-dumping tariffs.

His job at White House, Navarro says, is to help create a manufacturing sector and jobs for “Americans who work with their hands”.

Last question: “How do you fit these pieces together?”

Are there other initiatives coming? Navarro says ongoing concern will be maintaining healthy defense budget. “We are at the cusp of the next industrial revolution... points to AI, space... So a deep concern is that we spend that money wisely.”